Dive Brief:

• The Department of Justice issued a writ Thursday asking the Supreme Court to dismiss a decision from the D.C. Circuit Court that invalidated FERC Order 745, Politico reports. 
• The 59-page document argues the D.C. Circuit misinterpreted the Federal Power Act when it decided to vacate the agency's rule aimed at boosting demand response. The circuit court judges ruled in May that Order 745 infringes on the states' exclusive right to regulate retail energy markets, and that FERC should stick to its role of regulating wholesale markets.
• Justice Dept. lawyers wrote that the D.C. Circuit's concern was unfounded. Order 745, they say, makes demand response providers "actual and integral participants" in wholesale markets because it sets forth a methodology for how they should be compensated for reducing electricity demand.

Dive Insight:

That the Obama administration has appealed the D.C. Circuit's decision to vacate Order 745 shouldn't come as a shock to the demand response industry. The White House has been signaling it would do so since December, when John Podesta, then President Obama's environmental point man, told a smart grid conference that the administration viewed the D.C. Circuit's ruling as a "very significant and mistaken decision." The administration announced Dec. 8 that they would appeal to the Supreme Court and was given until Jan. 15 to file a writ. 

The U.S. Court of Appeals for the District of Columbia Circuit — otherwise known as the D.C. Circuit — found that FERC's attempt to regulate demand response in wholesale energy markets encroached on the the exclusive right of states to regulate retail energy markets. The decision threw the demand response industry and the markets it serves into uncertainty and lowered projections for DR growth by almost half.

The Justice Dept. and FERC lawyers who drafted the writ argued that the D.C. Circuit completely misinterpreted FERC's aims in issuing Order 745. "The [D.C. Circuit] court’s analysis was driven by a concern that FERC’s position would permit the Commission to regulate the retail-electricity market and markets in generation inputs, like fuel and steel," they wrote.

In fact, the petitioners argued, FERC has no interest in regulating retail electricity markets. They view demand response providers as a part of wholesale markets, which FERC has a mandate to regulate. "The demand-response providers are actual and integral participants in wholesale markets themselves," they wrote, "and the effect of their participation on the wholesale rate is far more immediate and direct than the effect exerted by retail consumption generally or the markets in generation inputs."

The D.C. Circuit ruling, the petitioners wrote, creates a "regulatory gap" for demand response. States are prohibited from regulating DR resources in wholesale markets, and if FERC is legally barred as well there appears to be no entity with the power to set pricing mechanisms for demand response.

Even if the Federal Power Act is ambiguous about the role of FERC and the states in regulating demand response, the administration argues it should be given deference over its interpretation of the law. The 1984 case Chevron vs. NRDC​, gives federal agencies the power to interpret laws "‘if the statute is silent or ambiguous with respect to the specific issue."

“[S]tatutory ambiguities will be resolved," the petitioners quoted Chevron, "within the bounds of reasonable interpretation, not by the courts but by the administering agency.”

The Supreme Court has not yet indicated if it will hear the case.